SOUTH KOREA'S CENTRAL BANK INCREASED REFERENCE RATE 25 BPS TO 3.25 PERCENT

SOUTH KOREA’S CENTRAL BANK INCREASED REFERENCE RATE 25 BPS TO 3.25 PERCENT

Korea increased reference rate. South Korea’s central bank slowed the pace of hikes in its benchmark interest rate amid efforts to ease pressure on the economy and credit markets while keeping inflation under control. The Bank of Korea (BOK) decided to increase the 7-day reverse repo rate by 25 basis points to 3.25 percent. This decision was in line with the forecasts of 15 of 17 economists surveyed by Bloomberg. Meanwhile, the BOK also estimates that economic growth in 2023 will slow down to 1.7 percent, down from the projection in August of 2.1 percent. The cut in the growth projection was driven by the slowdown in global economic growth and the impact of the increase in the benchmark interest rate.
Korea increased reference rate. South Korea’s central bank’s move to slow the pace of rate hikes reflects concerns among policy makers about credit market failures sparked by a default by a local government-owned developer. The BOK is also worried that further exaggerated volatility could dampen economic growth at a time when exports are down. In fact, this country is very dependent on export trade. The BOK raised its benchmark interest rate by 50 bps twice this year to keep pace with the Federal Reserve and stem the won’s depreciation. The US central bank’s signals of a potential downside to its tightening pace provided room for the BOK, coupled with the won’s strengthening from a 13-year low in recent weeks.
Inflation remains a top concern for the Korean central bank after inching up to 5.7 percent in October. The BOK expects growth in the consumer price index to remain accelerating at around 5 percent for some time, although it doesn’t expect inflation to pick up significantly more than that. Inflation has had a big impact on Korea’s housing market, with higher interest rates putting pressure on property prices and debt. South Korea’s consumer credit increased at its slowest pace in the last quarter, led by mortgage loans. However, the BOK now expects inflation to reach 3.6 percent next year, slightly lower than its estimate in August.

RELATED NEWS